Sunday, June 29, 2014

the key reports this past week were the 3rd estimate of first quarter GDP, which showed our economy actually shrank at a 2.9% rate in the first quarter, and the May report on personal income and outlays, which indicated another monthly decrease in inflation adjusted personal spending; there were also reports on new and existing home sales for May, and the release of Case-Shiller home price index for April...for manufacturing, we saw the advance report on durable goods, and two regional Fed manufacturing surveys; the Richmond Fed, reporting for a District that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported somewhat slower growth in June as the Fifth District manufacturing composite index slipped to 3, down from a reading of 7 in May, in a diffusion index where numbers above zero indicate expanding activity...similarly, the Kansas City Fed, surveying an region that includes western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, also reported that Growth in Tenth District Manufacturing Activity Slowed Somewhat as their June composite index slipped to 6 from 10 in May...this week also saw the release of the Chicago Fed National Activity Index for May, a composite index of 85 different economic metrics grouped into four broad categories of data, each constructed to have an average value of zero, such that a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend…their national index increased to +.21 in May from –0.15 in April as 52 of the 85 indicators were positive, with production-related indicators adding 0.20 to the overall index, employment-related indicators adding 0.10, the sales, orders, and inventories category adding 0.04, while the consumption and housing metrics subtracted 0.12 from the overall reading for May..

1st Quarter GDP Revised to –2.9% as Investment, Exports Tumble

the Third Estimate of our 1st quarter GDP from the Bureau of Economic Analysis showed that our economy shrank at a 2.9% rate in the first quarter, revised from the 1.0% rate reported last month, which revised the growth of 0.1% reported in the 1st estimate...this was the largest revision of the 2nd estimate to the 3rd estimate in BEA records going back to 1976, and except for the 4th quarter of 2008 and the 1st quarter of 2009 at the depth of the recession, our worst quarterly economic contraction in 24 years...in current dollars, our 1st quarter GDP would extrapolate to $17,016.0 billion annually, down 1.7% from the $17,089.6 billion annualized figure of the 4th quarter...however, since the change in GDP being reported here is not a measure of the change in the dollar value of our GDP but a measure of the change in our output, it's adjusted for inflation using chained 2009 dollars, resulting in the reported 2.9% annualized decrease in the output of goods and services produced by labor and property in the US....the inflation adjustment used in the first quarter, aka the "GDP deflator", implies annual inflation at a 1.3% rate, unchanged from the 2nd estimate, and down from 1.6% GDP deflator applied to GDP in the 4th quarter...while we cover the details below, recall that all quarter over quarter percentage changes in this report are all given at an annual rate, which means that they're expressed as a rate of change a bit over 4 times the change that actually occurred over the 3 month period...

the revision to seasonally adjusted real personal consumption expenditures (PCE) was by far the largest factor in the downward revision to 1st quarter growth...originally reported to growing at a 3.1% rate, the BEA has revised growth in real personal consumption expenditures to just 1.0%, the the slowest growth of personal spending since the last quarter of 2009...as a result, real PCE only added .71% to first quarter GDP, vis a vis the 2.09% contribution from personal spending that was shown in the 2nd estimate...thus, with all other major components of GDP already shrinking, the revision to PCE accounted for 1.38% of the overall downward revision of 1.9%...real personal outlays for durable goods rose at an annual 1.2% rate in the quarter, rather than the 1.4% rate previously reported, even though the current dollar spending for durable goods fell by over 1.0%, as the price deflator for durable goods was negative 2.5%...deflation adjusted outlays for motor vehicles accounted for more than half of the increase in consumer spending for durables, while real outlays for durable household equipment and furniture shrunk at a 1.6% annual rate...meanwhile, real personal spending for non-durable goods fell at a 0.3% rate, reversing the previous estimate of a 0.4% increase, as inflation adjusted food and beverage outlays fell at an inflation adjusted 1.3% rate and seasonally adjusted real purchases of clothing and footwear fell at a 4.2% rate...so, while the increase in real durable goods spending added 0.9% to GDP, the contraction in real outlays for non-durables subtracted 0.5% ...the major revision to real PCE, however, was in real consumer outlays for services, as they were originally estimated to have grown at a 4.3% rate and have now been revised to indicate 1st quarter growth at a 1.5% rate...within those services, the major revision was to consumption of health care, which was previously seen growing at a 9.1% rate and now is seen as contracting at a 1.4% rate...apparently the BEA encountered some difficultly in estimating the contribution from Obamacare, which was ultimately corrected by a subsequent Census report...real outlays for recreation services and food services and accommodation were also down fractionally; however, with real spending for housing and utilities up at a 9.4% rate due to the colder than normal winter, the services component of real PCE still managed the gain of 1.5% that raised GDP .67% from what it otherwise might have been...

last month we noted the second estimate of GDP showed the worst slowdown in investment since 2009, and this final revision didnt change that much, as it was estimated 1st quarter gross private domestic investment shrunk at an 11.7% rate, same as the second estimate, while it subtracted 1.97% from the rate of GDP change rather than the 1.98% hit reported last month...the lion's share of the contraction in investment resulted from a slowdown in the growth of inventories, as they grew by $45.9 billion, an inflation adjusted $65.8 billion less than the $111.7 billion increase in inventories in the 4th quarter, and revised down from the $49 billion indicated by the second estimate...as a result, the inventory growth contraction subtracted 1.70% from 1st quarter GDP rather than the 1.62% reported last month.... fixed investment declined as well, subtracting 0.27% from GDP, as fixed investment fell by $11.3 billion, or at a 1.8% annual rate vs the 2.3% rate estimated last month; investment in non-residential structures fell at a 7.7% rate, revised from the 7.5% rate of decline previously reported, investment in equipment fell at a 2.8% rate, revised from a 3.1% decrease, as investment in information processing equipment fell by an inflation adjusted $8.6 billion, while real investment in intellectual property increased by an inflation adjusted $9.7 billion or at a 6.3% rate, revised from a 5.1% increase, as research and development spending was up $7.4 billion....on net, the reduced investment in non-residential structures subtracted 0.22% from GDP, lower equipment investment took off 0.16% the final figure, while the increase in intellectual property investment added 0.24% to GDP...meanwhile, the contraction in investment in residential structures was revised from a 5.0% rate to a 4.2% annualized decline and subtracted 0.13% from the final rate of GDP change...

the real 1st quarter net trade figures were revised down as well, as we expected in noting the revision to March trade when the April trade report was released....the BEA originally estimated that our 1st quarter exports had dropped at an inflation adjusted 6.0% annual rate while imports increased at a 0.7% rate, for an increase in the trade deficit over the 4th quarter that subtracted 0.95% from the 2nd estimate of GDP....with the revised data for March trade now available, they now show that real exports of goods and services fell at a 8.9% rate, $47.4 billion inflation adjusted dollars less than the 4th quarter, while real imports increased by an inflation adjusted $11.0 billion, or at a 1.8% rate...as you should recall, exports add to gross domestic product because they are that part of our products that are not consumed or added to investment in our country, while imports subtract from GDP because they represent either consumption or investment that was not produced here...thus the increase in real imports subtracted 0.29% from GDP, rather than the .12% previously estimated, while the 8.9% decline in exports subtracted 1.25% from GDP, up from 0.83%...hence, with the change in both exports and imports both subtracting more from GDP that previously estimated, the 1st quarter growth rate of our output took a 1.53% hit from the 1st quarter increase in the trade deficit...

meanwhile, there were only minor revisions to real government consumption and investment in this third estimate...real federal government consumption and investment grew at a 0.7% rate over the first quarter, as real federal spending for defense fell at a 2.5% rate rather than the 2.4% rate previously recorded, while the defense spending contraction still subtracted 0.11% from GDP, which was unchanged from the last report...all other federal consumption and investment rose at a 5.9% rate, which was unrevised, and added 0.16% to GDP...real state and local consumption expenditures rose at an adjusted $2.4 billion rate, rather than the the $2.5 billion increase previously reported, while real state and local investment outlays fell at a $9.6 billion rate, not by $10.1 billion as previously estimated; hence, while state and local consumption added 0.06% to GDP, the contraction in state and local investment outlays subtracted 0.18% from 1st quarter growth, a bit less than the 0.20% reported last month...

our FRED bar graph below, which can also be viewed as an interactive, has been updated with these latest GDP revisions…each color coded bar shows the change, in billions of chained 2009 dollars in one of the major components of GDP over each quarter since the beginning of 2012...in each quarterly grouping of seven bars on this graph below, the quarterly changes in real personal consumption expenditures are shown in blue, the changes in gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in private inventories is in yellow, the change in imports are shown in green, the change in exports are shown in purple, while the change in state and local government spending and investment is shown in pink, while the change in Federal government spending and investment is shown in grey...those components of GDP that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are shown on this chart as a negative, so that when imports shrink, they will appear above the line as an addition to GDP, and when they increase, as they have in the recent quarter, they'll appear below the zero line...you can clearly see the widespread weakness in all components of GDP in the far right group representing the first quarter of 2014, with personal consumption expenditures in blue, gross private investment in red, and exports in purple all posting their worst quarter since the recession in 2009..

the major monthly release of the week, also from the Bureau of Economic Analysis, was on Personal Income and Outlays for May, which in addition to the important personal income data, also reports the monthly data on our personal consumption expenditures (PCE), which as we just saw is the major component of GDP...from that data, the BEA also computes personal savings and the national savings rate, as well as the price index for PCE, which is the inflation gauge the Fed says it targets and which is used in this report to adjust both personal income and consumption expenditures for inflation....like the GDP reports, all the dollar amounts referenced by this report are seasonally adjusted and at an annual rate; so the monthly dollar changes, which are not reported, are actually on the order of one twelfth of the reported amounts... however, the percentage changes are expressed as a month over month change and are used within the report as if they refer to the annualized amounts, often leading to confused media coverage...

total personal income increased at a seasonally adjusted and annualized $58.8 billion rate in May, to $14,587.3 billion annually, which was 0.4% higher than in April, when personal income increased by 0.3%....disposable personal income (DPI), which is income after taxes, increased at an annualized rate of $55.6 billion to $12,877.2 billion, which was also a 0.4% increase over April, while April's DPI was up 0.4% over March, revised from the 0.3% increase in DPI reported last month...increases in private wages and salaries of $27.8 billion accounted for less than half of the personal income increase in May, but that increase was nonetheless higher than the $17.9 billion increase in April payrolls; increases in service industry payrolls accounted for $20.4 billion of the May wages and salaries increase...increases in supplements to wages and salaries, such as employer contributions to pension plans, accounted for another $3.7 billion of May's annualized income increase, while employee contributions for government social insurance, which are subtracted from the personal income figure, increased at a $4.0 billion annual rate...other sources of the May income increase included proprietors' income, which increased at a $3.4 billion rate, with $2.2 billion of that increase going to farm owners and $1.1 billion to individual proprietors of other types of business, rental income of individuals, which increased at a $2.2 billion rate, and personal interest and dividend income, which increased at a $13.5 billion rate...in addition, increases in personal transfer payments from government programs, which have been a major factor in the personal income increases since the beginning of the year, increased by $10.7 billion in May, with $8.6 billion of that increase coming from programs other than Social Security, Medicare, Medicaid, Veterans benefits or unemployment comp....

meanwhile, seasonally adjusted personal consumption expenditures (PCE), which are the basis for the change in real PCE in the GDP data we reviewed earlier, rose at a $18.3 billion annual rate in May to $11,830.8 billion, 0.15% higher than April, which was itself up $2.3 billion, or less than 0.1%, from March....the current dollar increase in May spending included a $9.4 billion annualized increase to $1,303.9 billion in outlays for durable goods, mostly reversing the 11.1 billion decline in April, a $4.8 billion increase to $2,678.7 billion annualized in spending for non-durable goods, and an annualized $4.1 billion increase to an annual rate of $7,848.2 billion in spending for services...total personal outlays for March, which includes interest payments, and personal transfer payments in addition to PCE, increased by an annualized $$18.0 billion to $12,256.9 billion, which left personal savings, which is disposable personal income less total outlays, at $620.3 billion for the month, up from $582.7 billion in personal savings in April... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 4.8% in March, up from 4.5% in April and 4.2% in March and the highest savings rate so far this year...

while personal consumption expenditures accounted for 68.6% of our first quarter GDP, before they were included in the computation of real GDP they were first adjusted for inflation...that's done with the price index for personal consumption expenditures which is computed here, which is a chained index based on 2009 prices = 100....that index rose to 108.660 in May from 108.407 in April, giving us a month over month inflation rate of 0.23% and a year over year PCE price index increase of 1.71%; as a result, inflation adjusted or real personal consumption expenditures fell by 0.1% May after falling 0.2% in April, which would seem to indicate a negative PCE contribution to GDP for the coming second quarter; however, as March real PCE was up 0.6% over February which was in turn was 0.3% above January, the April and May personal consumption expenditures are still running at an annual rate slightly above the 1st quarter overall, and baring a significant downturn in June should still make a small contribution to 2nd quarter GDP...using the same PCE price index, disposable personal income is deflated to show that real disposable personal income, or the purchasing power of disposable income, rose by 0.2% in May, the same increase as in April...also note that even with the annual increase in the PCE price index to 1.77% and the core PCE price index to 1.49%, both still remain below the 2.50% PCE inflation target the Fed has been trying to hit.....

the picture of our interactive FRED graph below shows monthly real disposable personal income in blue and real personal consumption expenditures in red since January 2000, with the scale in chained 2009 dollars for both shown in the current datat box and on the left; also shown on this same graph in green is the monthly personal savings rate over the same period, with the scale of savings as a percentage of disposable income on the right...the spike in income and savings at the end of 2012 was a result of bonuses and income manipulation before the year end fiscal cliff; the earlier spikes were as a result of the tax rebates enacted as a fiscal stimulus under George Bush….although it may appear from the graph that real disposable income has been accelerating over the past 13 years, real DPI below is not adjusted for increases in the population; on a per capita basis, real DPI is up just 19.7% over the span of this graph…

New Orders for Durable Goods Fell 1.0% in May While Unfilled Orders Rose 0.6%

in another report out on the same day as the GDP release, the Census Bureau released the May Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders (pdf), which estimated that the widely watched new orders for manufactured durable goods fell by a seasonally adjusted $2.4 billion or 1.0% to $238.0 billion, the first decrease in new orders since January...however, the decrease was largely the result of a 31.4% drop in new orders for defense capital goods to $8,785 million; excluding defense, new orders actually rose 0.6% in May; furthermore, new orders for transportation equipment also fell for the first time in 4 months, by $2.3 billion or 3.0 percent to $74.4 billion, on a pullback in orders for commercial and defense aircraft; thus, excluding both the volatile transport and defense sectors, orders for all other durable goods rose 2.5%.....meanwhile, seasonally adjusted April shipments of durable goods, which will be reflected in 2nd quarter GDP, rose for the fourth consecutive month, increasing $0.6 billion or 0.3% to a record $238.6 billion; the strongest increase was a 1.6% jump in shipments of primary metals to $26,998 million, while a 5.9% decrease in shipments of commercial aircraft limited the increase in transportation sector shipments to 0.1%...in addition, seasonally adjusted inventories of durable goods, which have been up 13 out of the last 14 months, rose $3.8 billion in May to a record $397.8 billion, a 1.0% increase, in part driven by a 2.3% increase to $72,207 million in inventories of commercial aircraft and parts, while a decrease in motor vehicle inventories to $26,243 million limited the increase in transport sector inventories, which are up 10.6% over last year, to 1.1% in May....finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, were up $6.6 billion or 0.6% to $1,087.4 billion, also a new record for unfilled orders...unfilled orders for transportation equipment, up $4.6 billion or 0.7% to $675.8 billion, were again a major factor, as the $504,698 million order backlog for non-defense aircraft is always the largest line item....except for the 0.4% decrease in unfilled orders for defense capital goods, increases in the unfilled order book were seen across the board by all other categories of durable manufacturers in May...

New and Existing Home Sales increase in May

according to the National Association of Realtors, seasonally adjusted existing home sales rose by 4.9% in May to an annual rate of 4.89 million completed transactions, from an revised annual rate of 4.66 million in April, but home sales still remained 5.0% below the annual sales rate of 5.15 million-units sold last May...before the annualization and seasonal adjustment, an estimated 472,000 homes sold in May, up 11.8% from the 422,000 homes that sold in April, but still down 8.2% from the 514,000 homes that sold in May a year ago...both seasonally adjusted and unadjusted data (pdf) indicate that homes sales increased in every region of the country, ranging from a seasonally adjusted 0.9% increase in the West to an 8.7% increase in the Midwest...the median home selling price for all housing types was $213,400, up from $201,500 in April and 5.1% higher than the $203,100 median sales price in May of last year, in home price data that is not seasonally adjusted…the average home sales price was $260,700, up from $260,700 in April and $241,700 a year ago, with regional average home prices ranging from $339,900 in the West to the average of $197,900 for homes sold in the Midwest....foreclosed homes, which sold for an average of 18% below the market, accounted for 8% of May sales, while short sales, at 3% of the total, were discounted by an average of 11%...the median time on the market for all homes was 47 days in May, down from 48 days in April, but up a from 41 day median in May a year ago…those who bought houses with cash accounted for 32% of transactions in May, unchanged from April and down from 33% in May of 2013; those identified as investors accounted for 16% of all transactions, down from 18% in April and 18% a year earlier...mortgage rates averaged 4.19% in May, down from 4.34% in April; nonetheless, the share of first time home buyers fell to 27%, down from 29% in April and 29% in May of last year...

meanwhile, the Census bureau report on New Residential Sales for May (pdf) also showed that home sales increased for the month, by even more than what is typically the largest margin of error of any census construction series...Census estimated that new single family homes were sold at a seasonally adjusted annual rate of 504,000 in May, which was 18.6 percent (±17.3%) above the revised April rate of 425,000...that means if May's home sales were extrapolated out for an entire year at the normal seasonal rates of sales, Census figures something between 430,525 and 577,575 new homes would be sold....meanwhile, Census could not be certain that May's new home sales rose from those of a year ago, as they were estimated at 16.9 percent (±19.6%)* above last year's sales, a range which includes the possibility that they were 2.7% less than last years...the unadjusted data from Census field reps estimated that 49,000 homes sold in May, up from the revised sales of 40,000 in April and up from the revised sales of 40,000 new homes in May a year ago...of those 49,000 May home sales, 15,000 were completed, 16.000 were under construction, and 18,000 had not yet been started...the median new home sales price was $282,000 in May, up from $275,800 in April; while the average sales price was $319,200, up from April's $320,100 average... the Census estimated that a seasonally adjusted 189,000 new homes remained unsold at the end of May, which was a 4.5 month supply at the May sales pace, down from a 5.3 month supply in April....the interactive FRED graph below show the historical data from this Census report, with the monthly sales reported as an annualized figure…although new homes sales are still well below those of the boom years, it’s clear that they have also risen well above the 400K annual level below which they were mired for 4 years...

Case-Shiller April Report Shows Home Prices Rising 10.8% Year Over Year

the Case-Shiller Home Price Index for April, tracking prices for repeat sales of homes over the three month period of February to April vis a vis the 3 month period from January to March, showed the 10-City Composite index with a 1.0% increase in home prices while the 20-City Composite Index was up 1.1% for the month, while both Composites posted annual home price increases of 10.8%, in contrast to year over year gains of 12.6% for the 10-City Composite and 12.4% for the 20-City Composite last month...all 20 cities saw home prices rise for the month; the largest one month home price increases were registered in Boston at 2.9%, in San Francisco and Seattle at 2.3%, and in Atlanta and Chicago at 2.0%, while New York at the low end eked out an increase of 0.1%...the largest year over year home price increases were seen in Las Vegas at 18.8%, San Francisco at 18.2%, San Diego at 15.3% and Detroit at 15.0%, while Cleveland, where prices rose 2.7%, was the only city showing an annual home price increase of less than 5%...it's worth noting that the index is based on closing prices when they're recorded in county records, and typically represent contract prices agreed to roughly 45 to 60 days before the closing; hence, the home price changes indicated by this report already average nearly 6 months old...

we'll again include below screenshots of the pair of interactive FRED graphs we created to show the historical track of home price indexes for each of the cities in the 20 city index, all based on 2000 home prices equal to 100.0... in our first FRED graph, we show the tracks of home price indexes for Atlanta in bright blue, Boston in bright red, Charlotte in dark green, Chicago in orange, Cleveland in purple, Dallas in grey, Detroit in mauve, Denver in mustard, Las Vegas in dull blue, and Los Angeles in beet red... for the larger interactive view of this graph at FRED, click here; there you can move your cursor across the graph and view the monthly price history of the changes in the price indices for all 10 cities shown below, just as we have included the index values for each of them for the April report in our screenshot…

our second FRED graph of the Case-Shiller city indices shows the the historical price track of the metro home price indexes for Miami in bright blue, Minneapolis in bright red, New York in dark green, Phoenix in orange, Portland in violet, San Diego in grey, San Francisco in mauve, Seattle in mustard, Tampa in dull blue and Washington DC in beet red; in addition, this second chart includes the track of the Case-Shiller Composite 20 shown as a heavier black line…the S&P Case-Shiller index is not seasonally adjusted, but we notice that the seasonal home price swings have become more pronounced since the housing bust…again, you can click here for the larger 1000 pixel interactive version of this graph at the St Louis Fed web site, where all the lines can be easily traced and the index values for each viewed over time with their interactive tool…

(the above are the comments that accompanied my regular sunday morning links emailing, synopses which in turn were mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links that accompanies these commentaries, most from the aforementioned GGO posts,contact me…)

Sunday, June 22, 2014

the major economic releases this past week were the May report on industrial production from the Fed, the May report on residential construction from the Census Bureau, and the May consumer price index release from the BLS...we also saw the first two regional surveys on manufacturing from Fed District banks; on Monday, the Empire State Manufacturing Survey for June from the New York Fed, covering manufacturers in New York and northern New Jersey, reported that their broadest diffusion index for general business conditions was at 19.3, up fractionally from from 19.0 last month, and the highest since February 2012...with any positive number in these Fed surveys indicating improving conditions, a 19.3 reading implies fairly robust growth for area manufacturers....then on Thursday, the Philadelphia Fed released their June Business Outlook Survey, covering manufactures in most of Pennsylvania, southern New Jersey, and Delaware; their broadest gauge of manufacturing activity came in at 17.8, an increase from last month's 15.4 and like the New York survey, also indicating solid expansion in June...

May Industrial Production at Record High on Increase in Manufacturing and Mining

the Fed's G17 release on Industrial production and Capacity Utilization for May indicated that industrial production rose by 0.6% over an April reading which was revised from a 0.6% drop in output to a 0.3% decline...the industrial production index, which is benchmarked to 2007 production equal to 100.0, rose to a record high 103.7 from 103.0 in April, 4.3% higher than a year ago...April's index was revised up from 102.7 while March's reading was left unchanged at 103.0...the manufacturing index, which accounts for roughly 70% of the composite, rose 0.6% in May to 99.5, while the April manufacturing reading was revised from a drop of 0.4% at 98.6 to a decline of just 0.1% at 98.9, and thus the manufacturing index is now up 3.6% from a year earlier...the utility index, continuing to retreat to normal levels after wintertime increases, fell another 0.8% in May to 100.8, after falling a revised 4.5% in April; utility output in May was just 0.6% greater than last May.... meanwhile, the mining index, which includes oil & gas production, increased 1.3% to 129.1 in May, after increasing 1.6% in April and 1.9% in March...the mining index is now up 6.2% year to date, and 9.7% higher than a year ago...

in addition to the breakdown of industrial production into those three main three industry groups, this G17 release also reports on industrial production by market group...among final products and nonindustrial supplies, May production of consumer goods rose 0.1% after falling 0.5% in April, as seasonally adjusted production of durable goods increased by 0.9% after a 0.1% decline in April, as a 1.5% increase in production of automotive products and a 0.9% increase in production of durable appliances, furniture and carpeting led the advance, while production of home electronics increased by 0.3%...for the 12 months from ending in May, durable goods production rose 6.1% on a 7.5% increase in production of automotive products, a 7.6% increase in production of appliances, furniture and carpeting, a 1.6% increase in home electronics production, and a 3.7% increase in production of miscellaneous durable goods...production of non-durable goods, meanwhile, fell 0.1% in May even after falling 1.4% in April as output of non-energy non-durable goods fell 0.2% on a 0.5% drop in food and tobacco production, a 0.2% decrease in clothing production and a 0.4% decline in output of paper products, while output of chemical products rose 0.3%...for the year ending May, non-durable goods production excluding energy rose 1.8% as food and tobacco production rose 2.0%, clothing production rose 4.9%, chemical products production rose 1.9% while the output of paper products fell 2.4%...meanwhile, output of energy, also included in non-durable totals, fell 0.1% in May after falling 4.6% in April but was nonetheless 3.8% higher than last May...

seasonally adjusted production of business equipment rose 0.8% in May after rising 0.1% in April as production of industrial equipment rose 1.1%, production of transit equipment rose 0.5%, and production of information processing equipment rose 0.4%..for the year ending May, production of business equipment rose 5.3%, as production of industrial equipment rose 7.0%, production of transit increased by 4.2%, and production of information processing equipment rose 2.1%...however, production of defense and space equipment fell by 0.3% in May, while it was up 2.3% for the year...in addition, production of supplies for use in construction rose by 0.8% in May and by 4.4% for the year, while production of business supplies rose by 0.1% in May and 2.6% rate for the year ending May...meanwhile, production of raw and intermediate materials that would input into other production processes rose at a 0.9% rate In May, led by a 1.4% increase in equipment parts, a 1.1% increase in energy materials, and a 1.0% increase parts for consumer goods, while output of textile materials fell 2.1%,…the preceding year's production of such materials to be processed further in the industrial sector grew by 5.1%, lead by a year over year 7.0% increase in output of energy materials...

with industrial production increasing in May, capacity utilization, which is the percentage of our plant and equipment that was in use during the month, likewise rose, but by a smaller percentage change, from 78.9% in April to 79.1% in May, suggesting plant capacity was added during the month...77.0% of our total manufacturing capacity was in use during May, up from 76.7% in April, and up from the manufacturing utilization rate of 75.8% in May of last year...the operating rate for NAICS classified durable goods manufacturers was at 76.8%, up from 76.4%, let by an 84.4% operating rate for manufactures of electrical equipment, appliances, and components, while the May operating rate for NAICS classified manufacturers of non-durables was at 78.6%, up from 78.4% in April, with the oil and coal products industry operating at 84.5% of capacity.... meanwhile, capacity utilization by the 'mining' industry rose from 90.2% to 90.1%, reflecting both higher production and the likelihood that oil and gas rig counts probably rose during the month; while the operating rate for utilities fell from 79.9% to 79.1%.......our FRED graph for this report below shows the percentage of capacity in use for all industries monthly since 2007 in pink, while it shows the the seasonally adjusted industrial production index values for all industry in black, the manufacturing production index in blue, the utility production index in green, and the mining production index in red from the beginning of the index year of 2007, at which time they were all benchmarked to equal 100.0…

No Discernable Trend Change in May New Home Construction

the May Report on New Residential Construction (pdf) from the Census Bureau gives us broad estimates of new housing permits, new housing starts, and housing completions based on a survey of a small percentage of permit offices visited by Census field agents, is widely watched and reported on for new housing starts with virtually no mention of the wide margin of error inherent in the small Census sampling...in May, starts on new housing units were estimated to be at a seasonally adjusted annual rate of 1,001,000, which was 6.5 percent (±10.2%)* below the revised April estimate of 1,071,000 annually, and 9.4 percent (±11.0%)* above the annual rate of 915,000 housing starts estimated a year ago....in the footnote, the Census tells us the asterisk means they don't have sufficient statistical evidence to determine whether there was an increase or decrease in new housing starts for the month or even for the year, but that there's a 90% likelihood that seasonally adjusted new starts in May were in a range between 16.7% less than April’s and 3.7% more than April's, and a similar likelihood that May's new housing starts were in a range between 1.6% less than a year earlier and 20.4% more than a year earlier...the unadjusted estimates from which those annual rates were extrapolated indicated an estimated 59,700 single family homes were started in May, while an estimated 33,600 apartment units were started in buildings with 5 or more units; the margin of error on single family starts was ± 12.7%, while the margin of error on apartment units started was ± 21.8%...

the monthly data on new building permits have a much smaller margin of error; but since not all permits to build actually result in construction, this again is just an estimate of intention rather than activity; in May, new permits were issued at a seasonally adjusted annual rate of 991,000, which was 6.4 percent (±0.8%) below the revised April annual rate of 1,059,000 and 1.9 percent (±1.4%) below the 1,010,000 annual rate estimated in May of last year...those estimates were extrapolated from the unadjusted estimate of 91,000 permits issued in May, which was down from the estimated 94,700 permits issued in April...of those, 59,500 were for single family homes, and 29,300 represented permits for housing units in building with 5 or more units; the margin of error on both single family and multifamily permits issued in June was ± 1.2%..

May CPI Up 0.4% on Broad Based Increase in Prices

the trend toward higher consumer prices, which began early this year after months near long term lows, continued in May as the Consumer Price Index for All Urban Consumers (CPI-U) for May from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose by 0.4%, the largest one month increase since February 2013, with prices for food, energy and several other sectors contributing....core prices, which are for all items except food and energy, rose by 0.3%, the largest increase for the Core CPI since August 2011, on higher prices for medical commodities and most services....the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose from 234.781 in February to 236.293 in March and was 2.13%% above the 232.945 reading of a year ago….the unadjusted core index rose from 237.509 in April to 238.029 in May and was 1.96% ahead of its year ago level of 233.462...

the seasonally adjusted energy index increased by 0.9% in May as the cost of energy services rose 1.4% and prices for energy commodities rose 0.6%...driving the energy services price increase was a 2.3% increase in the electricity index, which was actually a 4.1% one month jump before the seasonal adjustment, but only 3.6% higher than a year ago...moderating the energy services increase, utility natural gas prices fell 1.7% in May; however they were 7.5% higher than last May...driving the increase in the energy commodity index was an 0.8% increase in the motor fuel composite, most of which is gasoline, which was up 0.7% over April and 2.3% higher than a year ago...meanwhile, prices for fuel oil fell 1.4% in May while they were 5.3% higher than a year earlier, and prices for other fuels, including propane, kerosene and firewood, fell by 1.3% but remained 6.6% higher than last May...

the seasonally adjusted food index rose 0.5% in May, the largest single month increase for food since August 2011, after rising 0.4% in April and was 2.1% higher than last May....prices for food away from home rose 0.2% as meals at full service restaurants were 0.2% higher, prices at fast food restaurants rose 0.1% and prices for other food away from home, including food at work and at school, rose 0.3%....meanwhile, the price index for food at home rose 0.7% in May, led by meat and produce prices, many of which have been impacted by the ongoing drought in California...prices in the meats, poultry, fish, and eggs group rose 1.4% for the month as bacon prices rose 5.1%, fresh chicken prices rose 3.3% and prices for fresh fish and seafood were 2.2% higher than in April...for the year ending May, beef prices averaged 10.7% higher than a year earlier, pork prices were up 12.2%, and egg prices were 10.1% higher than last May...in addition, the fruit and vegetable price index was 1.1% higher in May as apples rose 2.5%, lettuce prices rose 2.0% and fresh vegetables other than lettuce, tomatoes and potatoes were 2.8% higher, while prices for processed fruits and vegetables averaged a 0.6% increase; for the year, prices for citrus fruits were 22.5% higher, with oranges rising 17.1% since last May...meanwhile, dairy products prices were up 0.6% in May as cheese prices rose 2.0%, while ice cream was 0.9% lower; and milk is now 7.3% higher than a year ago....in the only food group to see lower prices in May, the index for cereal and bakery goods was 0.1% lower in May and only 0.1% above prices of a year earlier, as white bread prices fell 1.7%, flour prices fell 0.3%, while cakes and cupcakes were 1.2% higher than in April...meanwhile, prices in the beverage group rose 0.4% as non-carbonated juices fell 0.2% while coffee prices rose 0.4% and tea rose 0.7%, while beverage prices were 0.9% lower than a year earlier...lastly, prices for other foods at home rose 0.3% as spices, seasonings and condiments rose 1.2%, baby food and snacks rose 0.5%, while prices for sugars and sweets were 0.5% lower...

even though the rise in the CPI was driven by higher food and energy prices, most seasonally adjusted prices of core CPI components were higher as well....the index for shelter, which is almost 32% of the CPI, rose 0.3%, with rent of shelter rising 0.3%, owner's equivalent rent rising 0.2%, while prices for lodging away from home rose 2.0%...meanwhile, household furnishings and supplies, the commodity component of housing, fell 0.2% on a 2.0% drop in prices for laundry appliances and 3.2% lower prices for dishes and flatware...the price index for apparel, which had been down 0.3% year to date, rose 0.3% in May as women's outerwear rose 2.0% and boys and girls footwear rose 3.0%...the aggregate index for medical care was also up 0.3% as medical care commodities rose 0.5% on a 0.7% increase in prescription drug prices, while medical care services were up 0.3% on 1.1% higher priced glasses and eye care, 0.5% higher inpatient hospital services, 0.4% higher physicians' services, while the cost of health insurance fell 0.2% and was down 0.1% from a year earlier..and while the transportation composite index showed a 0.6% increase, that index includes gasoline; transportation commodities less fuel were actually unchanged, as prices for new cars and trucks rose 0.2% while the price of used cars fell 0.1%, the price of tires fell 0.2%, and the price of other automotive parts and accessories fell 0.3%, while, the transportation services index rose 1.0% despite a 2.3% drop in prices for car and track rentals on airfares that were 5.8% higher than in April...meanwhile, the recreation index was unchanged in May as recreation commodities fell 0.3% on a 1.9% decrease in TV prices and a 2.2% decrease in prices for sports vehicles and bicycles, which were partially offset by a 0.8% increase in prices for pets, pet supplies and pet accessories, while recreation services rose 0.1% on a 0.4% increase in prices for photographers and film processing which was partially offset by a 0.3% decrease in admissions to sporting events...finally, the aggregate education and communication index rose 0.1% even though education and communication commodities fell 0.4% on a 0.7% decline in prices for personal computers and peripheral equipment because education and communication services rose 0.1% on a 0.4% increase in postage and delivery services and 0.3% higher college tuition.... on a year over year basis, just two line items among CPI components other than food and energy showed price changes greater than 10%; prices for dishes and flatware are 10.2% lower, and televisions are 14.0% cheaper than they were a year earlier...

our FRED graph below shows the overall change in each of the major component indexes of the CPI since January 2000, with all indexes reset to 100 as of that month for an apples to apples comparison of the price changes in each; note that in these aggregate indexes, home energy costs are included in the housing index, and gasoline prices are included in the transportation index...in blue, we show the relative track of the price index for food and beverages; in bright green, we show the reset price index for all housing components, which includes rent, homeowners equivalent rent, utilities, insurance & household maintenance; in red, we have the price changes for apparel, the only index to show a net price decline over the decade; while the relative change in the price index for medical care shown in violet has obviously seen the greatest price increase over the period…next, the transportation price index is in orange, and shows the impact of volatile fuel prices on the cost of transportation, while the price change for education and communication over the period is tracked in brown, and in dark green, is the relative strength of the index for recreation prices...finally, we’ve added the track of the overall CPI-U in black, which tends to track close to the large housing component, which makes up 41.5% of the total index…this graph can also be viewed as an interactive, wherein you can track the monthly changes in all of these relative indexes by dragging your cursor across the graph…

Real Earnings and Regional Employment

coincidental with the release of the CPI, the BLS also released the Real Earnings Report for May, which reported that seasonally adjusted real average hourly earnings for all employees fell 0.2% from April to May, and was down by 0.1% for the year ending May...this is a rather simple metric meant to show the purchasing power of employees earnings and is derived by taking the monthly percentage increase in the average hourly earnings from the establishment survey of the employment report, which was 0.2% in May, and reducing it by the percentage change in the Consumer Price Index for All Urban Consumers (CPI-U), which we've just seen rose 0.4% over the same period...computing in the same manner for nonsupervisory and production employees only, seasonally adjusted real average hourly earnings fell 0.1% in May and were up 0.3% from May of last year...

(the above are the comments that accompanied my regular sunday morning links emailing, synopses which in turn were mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links that accompanies these commentaries, most from the aforementioned GGO posts,contact me…)

Sunday, June 15, 2014

it was a relatively slow week, with the major release being the retail sales report, which showed a small 0.3% increase in May sales, while April sales were revised to a 0.5% increase...other reports we saw this week included two reports on April sales and inventories, which you'll recall are a major component of GDP...first, on Tuesday, the Census bureau released the Wholesale Trade report on Sales and Inventories for April (pdf), which estimated that seasonally adjusted sales of merchant wholesalers increased by 1.3 percent (+/-0.5) from revised March sales to $450.2 billion, which was 7.8 percent (+/-1.8%) above the wholesale sales level of April last year...wholesale sales of durable goods were up 1.7 percent (+/-0.7%), on a 2.9% increase in wholesale sales of motor vehicles, parts and supplies, while wholesale sales of nondurable goods were up 1.0 percent (+/-0.5%) from March on a 3.0% increase in wholesale drugs and druggists' supplies...meanwhile, seasonally adjusted inventories of merchant wholesalers rose 1.1 percent (+/-0.2%) from the revised March total to $530.6 billion at the end of April, as inventories of durable goods were up 0.9 percent (+/-0.4%) on a 2.8% increase in wholesale inventories of electrical and electronic goods and a 2.5% increase in metals and minerals stocks, while inventories of nondurable goods increased 1.4 percent (+/-0.5%) on a 2.6% increase in wholesale inventories of drugs and druggists' supplies and a 2.3% increase in wholesale inventories of paper and paper products...

then on Thursday, the Census released the Manufacturing and Trade, Inventories and Sales Report for April, usually referred to in the media as just 'business inventories", which estimated that the combined value of seasonally adjusted distributive trade sales and manufacturers' shipments increased by 0.7 percent (±0.2%) from March to $1,337.4 billion in April, which was 5.4 percent (±0.6%) above the total monthly sales level of April a year ago; manufacturers sales were estimated at $497,642 million, retailer's sales were estimated at $389,594 million, and merchant wholesalers accounted for $450,186 million of the overall total...meanwhile, total manufacturer's and trade inventories were estimated to have increased 0.6 percent (±0.1%) from March to a seasonally adjusted $1,337.4 billion in April, which was up 5.0 percent (±0.5%) from April a year ago and the largest increase in 6 months...seasonally adjusted inventories of manufacturers were estimated to be valued at $645,753 million, inventories of retailers were estimated to be valued at $551,979 million, and inventories of wholesalers were estimated to be valued at $530,591 million at the end of April...note that none of these totals are adjusted for change in price, as they must be before inclusion in 2nd quarter GDP...at the end of April, the total business inventories to total sales ratio, a metric which is watched to determine if inventories are becoming excessive, was at 1.29, unchanged from March and down a bit from the 1.30 inventories to sales ratio of a year earlier..

May Producer Prices Unexpectedly Fall 0.2%

on Friday the Producer Price Index for May released by the BLS unexpectedly indicated lower wholesale prices for the first time since February, as the seasonally adjusted producer price index for final demand fell 0.2% after rising by 0.6% in April and 0.5% in March and is now 2.0% above year ago levels...the index for final demand for services fell by 0.2%, led by a 0.5% drop in final demand trade, while the index for final demand of transportation and warehousing services rose 0.9%; excluding trade, transportation, and warehousing, prices for final demand services were down 0.1%...the price index for final demand for goods was also down 0.2% after rising by 0.6 in April, as the price index for final demand food fell 0.2% after rising 2.7% in April, as wholesale pork prices, which had increased 20.6% in April, retreated 5.1%, while wholesale eggs rose another 1.8% on top of their 15.1% increase last month....with the price index for final demand energy also down 0.2% on a 4.4% drop in LP gas prices and 0.9% lower gasoline, the core producer price index was statistically unchanged....in addition, this report showed the price index for processed goods for intermediate demand fell 0.1% on a 2.9% decrease in prices for basic organic chemicals, while prices for intermediate processed foods and feeds fell 0.2% and intermediate processed energy goods rose 0.3%; meanwhile, the price index for unprocessed goods was unchanged as a 2.7% increase in the index for unprocessed energy materials offset a 2.3% decrease in prices for unprocessed foods and feeds and a 0.7% decline in the index for unprocessed nonfood materials less energy...finally, the price index for services for intermediate demand, which is computed separately from intermediate goods, fell 0.4% in May, the largest decrease since a 0.5% drop a year earlier, with a 2.8% drop in prices for securities brokerage, dealing, investment advice, and related services accounting for 40% of the overall index drop..

May Retail Sales Increase 0.3% as April Sales are Revised up by 0.4%

the Advance Retail Sales Report for May (pdf) from the Census Bureau estimated that our total seasonally adjusted retail and food services sales for the month were $437.6 billion, which was an increase of 0.3 percent (±0.5%)* from revised April sales of $436.2 billion, and 4.3 percent (±0.9%) above sales in May of last year....April seasonally adjusted sales were originally reported at $434.6 billion, and with the upward revision the March to April increase was revised from the previously reported 0.1% (±0.5%)* to an increase of 0.5% (±0.2%), while March sales were revised downward slightly, from $434.2 billion to $434.018 billion....estimated actual sales in May, extrapolated from surveys of a small sampling of retailers, indicated sales rose to $463,085 million in May from $437,114 million in April, and up from $443,010 million in May a year ago....on net, this report, including revisions, should swing the 2nd quarter goods component of real personal consumption expenditures, which had been running negative, into a slightly positive contribution to 2nd quarter GDP...

the main driver of the reported seasonally adjusted May increase in retail sales was an 11.1% increase to $81,832 million in sales at car & other vehicle dealers, which we should have seen coming with the 7 year high in car sales reported last week; that brought May sales for the aggregate motor vehicle and parts dealers group to $88,826 million, 10.4% above April's sales for the automotive sector...excluding that extraordinary jump in motor vehicle and parts sales, retail sales for May were at $348,822 million, only 0.1% above April's sales...other retail sectors that saw seasonally adjusted sales increase appreciably in May included building material and garden supply stores, where sales rose 1.1% to $27,496 million, non-store retailers, which include online and mail order sales, where sales rose 0.6% to $39,226 million, furniture stores, where sales rose 0.5% to $8,548 million, gasoline stations, where sales rose 0.4% to $45,657 million, and the category of miscellaneous store retailers, where sales rose 1.8% to $10,006 million...retail business sectors that saw seasonally adjusted sales decline in May included general merchandise stores, where sales fell 0.6% to $54,890 million, clothing stores, where sales also fell 0.6% to $21,008 million, electronic and appliance stores, where sales fell 0.3% to $8,824 million, restaurants and bars, where sales fell 0.2% to $46,488 million, grocery stores, where sales fell 0.2% to $48,819 million, drug stores, where sales fell 0.1% to $24,361 million, and specialty shops, such as sporting goods, book and music stores, where sales fell 0.1% to $7,187 million...

the table below, taken from the Census pdf, shows the percentage change in retail sales by business type from April to May in the first column. and the May to May annual percentage change in sales by business type in the second column...the third and fourth columns show the revised monthly and yearly sales percentage change by business type for April; the 3rd column show the percentage change in retail sales by business type from March to April, while the 4th column shows the April to April percentage change in sales by business type...those columns revise last month's advance report for April, which we have saved here..

as previously noted, April's sales were revised from a increase of 0.1% to an increase of 0.5%, so once again we're confronted by the phenomena where the revisions to the previous month were greater than the sales gain reported for the current month....for the automotive group, the increase in April retail sales was revised from an originally reported 0.6% to the current increase of 0.9% over March; since that's consistent with the overall upward revision, the revision to retail excluding automotive sales was a similar increase, from the 0.0% reported to an increase ex-auto of 0.4%...the largest upward revisions to April's monthly changes were seen in furniture store sales, which were originally reported to have fallen 0.6% and have now been revised to an increase of 1.6%, electronic and appliance store sales, which were originally reported down 2.3%, have now been revised to a drop of just 0.7%; building materials and garden supply sales, which were originally reported up 0.4%, are now reported to have jumped 1.9%; specialty shops, including sporting goods, book and music stores, which were originally reported to have increased sales 0.7% in April, have now been revised to an increase of 1.4%; general merchandise stores, where sales were first reported as up 0.2%, have now been revised to an April increase of 0.9%; restaurant and bar sales, which were reported last month as down 0.9%, have now been revised to show a decrease of 0.3%, and miscellaneous store sales, where sales were originally reported down by 2.3%, are now shown to have decreased by just 1.4%...

this same release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'other separations', which include retirements and death.... in April, seasonally adjusted new hires totaled 4,708,000, statistically unchanged from the 4,706,000 hired or rehired in March, as the hiring rate as a percentage of all employed was also unchanged at 3.4%, but up from 3.3% a year earlier...retail sales hiring increased by 50,000 to 767,000 in April, while hiring in professional and business services fell by 36,000 to 981,000....total separations were also virtually unchanged, rising from 4,491,000 in March to 4,496,000 in April, as the separations rate as a percentage of the employed remained at 3.3%, also the same as a year ago...the 4,496,000 total separations minus the total hires of 4,708,000 would imply an increase of 212,000 jobs in April, which is 70,000 less than the revised payroll job increase of 282,000 for April reported by the BLS establishment survey last week, so one or both of these reports is off by that much, still well within the margin of error for both surveys...

our FRED graph for this report below shows job openings in blue in thousands monthly since January 2005, and monthly hires in orange and monthly separations in violet over the same span.note that when separations in purple were above hires in orange we were losing jobs...the two major components of separations are also included, the count of layoffs and firings is tracked in red, while the number of those quitting their jobs monthly is shown in green....

(the above are the comments that accompanied my regular sunday morning links emailing, synopses which in turn were mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links that accompanies these commentaries, most from the aforementioned GGO posts, contact me…)

most of May's seasonally adjusted payroll job creation was in the private service sector, with the broad professional and business services category accounting for a net 55,000 more paychecks, as 20,200 more were employed by employment services while 6,800 were added in management and technical consulting services...another 54,900 new jobs were added within health care services, with 23,100 of those in ambulatory care services such as home health care services and hospitals, while another 21,300 were added in social assistance...the leisure and hospitality sector added another 39,000 jobs in May, with 31,700 of those working in restaurants and bars, while the transportation and warehousing sector added another 16,400, including 5,500 in support activities for transportation..other service sectors that increased payrolls in May included retail trade, which added 12,500 jobs, 6,800 of which were in auto dealerships, wholesale trade, which added 9,900 jobs, with 6,500 of those in durable goods trade, education services, which added 7,600, and financial activities, where a net of 3,000 jobs were added, while the information sector employed 5,000 less...of the goods producing sectors, manufacturers added 10,000 jobs, with 6,400 added by transport equipment makers while food manufacturing shed 4,900; the construction trades employed 6,000 more, while the resource extraction industries added a net of 2,000, 1,600 of which were in oil & gas extraction...meanwhile, there was a net gain of 1,000 government jobs, as the federal as state governments each shed 5,000 workers, while 11,000 more were employed by local governments..

once again, the average workweek for all payroll employees was unchanged at 34.5 hours, with a tenth of an hour shorter workweek in the wholesale and retail trades while the workweek in financial and professional and business services lengthening by the same fraction, while the manufacturing workweek at 41.1 hours regained the 0.2 hours lost in April, and factory overtime was unchanged at 3.5 hours....the average workweek for production and nonsupervisory employees was also unchanged at 33.7 hours, with the average retail nonsupervisory employees seeing their workweek fall a tenth of an hour to 29.9 hours...the average hourly pay for all workers rose by a nickel an hour to $24.38 an hour as increases of a dime a hour in professional and business services pay and 17 cents an hour in mining and logging pay led the increase, while the average pay for nonsupervisory workers increased by 3 cents an hour to $20.54, with those in the mining sector again seeing the largest increase of .34 cents an hour to $26.89...

April Trade Deficit Rises 17% Above Originally Reported March Deficit in Another Hit to GDP

the April report on our International Trade in Goods and Services from the Commerce Department indicated that our seasonally adjusted trade deficit in goods and services was at $47.2 billion, up from revised $44.2 billion in March, as our exports fell $0.3 billion to $193.3 billion on a $0.6 billion decrease to $135.1 billion in goods exports and a $0.3 billion increase to $58.2 billion in services exports, while our imports rose $2.7 billion to $240.6 billion on a $2.7 billion increase to $200.9 billion in goods imports and less than a $0.1 billion increase in imports of services to $39.7 billion...the March trade deficit was revised from the previously reported $40.4 billion, making April the 5th increase in the trade deficit in a row, a bad start for 2nd quarter GDP and implying yet another writedown of our first quarter GDP...since last April, our goods and services deficit has increased by $6.8 billion, as our exports increased by $5.6 billion, or 3.0%, but our imports rose even more, by $12.4 billion, or 5.4% above last April's level...

among the end use categories of exports that saw seasonally adjusted March to April decreases were capital goods, exports of which fell by $303 million to $45,811 million on a $255 million decrease in exports of civilian aircraft and a $228 million decrease in exports of uncategorized industrial machines; we also saw a $262 million decrease in our $11,890 million of April exports of foods, feeds, and beverages, as our soybean exports decreased by $664 million while our corn exports rose $235 million; a $173 million decrease in exports of automotive vehicles, parts, and engines to $12,713 million, and a $87 million decrease in exports of consumer goods to $16,326 million as our jewelry exports fell by $295 million, our gem diamond exports fell by $216 million, while exports of several other consumer goods categories rose marginally, led by a $135 million increase in exports of pharmaceuticals...meanwhile, our exports of industrial supplies and materials rose by $237 million to $42,018 million in April on a $632 million increase in exports of fuel oil and a $343 million increase in exports of organic chemicals which were partially offset by a $348 million decrease in our exports of other petroleum products, while our exports of other goods not categorized by end use rose $119 million to $5,203 million...

end use categories of imports that saw seasonally adjusted increases for the month were topped by consumer goods, where our imports rose by $1,118 million to $47,505 million as our imports of cell phones rose by $1,243 million....at $27,167 million, we also imported $887 million more vehicles, parts, and engines in April, and our capital goods imports rose by $839 million to $48,636 million on $619 million more computer imports and $400 million more imports of telecommunications equipment...we also imported $10,791 million of foods, feeds, and beverages, $201 million higher than March, on a $105 million increase in imports of green coffee beans, and our imports of other goods not categorized by end use rose $324 million to $6,953 million...imports of industrial supplies and materials was the only import category with a decrease as they fell by $332 million to $57,671 million on $451 million less imports of fuel oil...

we'll include Bill McBride's graph from his coverage of this report below because it best shows how our trade deficit suddenly spiked over the past 5 months after 2 years of gradual improvement...reading from the top $0 line down, the black graph line tracks our deficit in petroleum trade only in billions of dollars since 1998; over the same span, the red graph shows our trade deficit for everything else except oil; combined together, those two are of course our total trade deficit, which Bill has graphed in blue...it's pretty clear that even though our oil deficit has been falling (ie, going up towards zero on this chart), our deficit in everything else had been gradually increasing until December, when the recent spike started...

Mortgage Delinquencies Rise 1.8% in April in First Increase This Year

this week also saw the release of the April Mortgage Monitor (pdf) from Black Knight Financial Services (BKFS, formerly the LPS Data & Analytics division)...as of the end of April, BKFS reported that 1,016,287 home mortgages, or 2.02% of all mortgages outstanding, remained in the foreclosure process, which was down from 1,069,791, or 2.13% of all active loans in March and down from 3.41% in April of last year....these are homeowners who had a foreclosure notice served but whose homes had not yet been seized, and April's "foreclosure inventory" was the lowest percentage of homes in foreclosure since 2008...new foreclosure starts were also at a post crisis low in April, falling to 78,796 from 88,113 in March; in April a year ago,127,496 homes saw foreclosure proceedings begin against them..in addition to homes in foreclosure, April data showed that 2,821,000​ mortgage loans, or 5.62% of all mortgages, were at least one mortgage payment overdue but not in foreclosure, up from the 2,770,000 homeowners, or 5.52% of those with a mortgage, who were more than 30 days behind in March, but down from the total delinquency rate of 6.21% a year earlier...of those who were delinquent in April, 1,187,019 home owners were considered seriously delinquent, which means they were 90 or more days behind on mortgage payments, but not in foreclosure at the end of the month...thus, of the 7.64% of homeowners with a mortgage who were either late in paying or in foreclosure, 4.39% of them remained in serious trouble at the end April...the bar graph below, from the data summary on page 24 of the Mortgage Monitor, shows total delinquencies as a percentage of mortgages outstanding for each month over the past year...you can see the seasonal spikes typical of June, September and November, and how mortgage delinquencies fell as homeowners caught up with bills after the holidays...last week TransUnion reported that homeowners had just returned to paying their mortgages ahead of their credit cards for the first time since the crisis began; the jump in April might not be a reversal, because as we noted earlier, credit card debt also grew at a 12.3% rate during the month...

in the following table we have a further breakdown of non-current mortgages by state, taken from page 29 of the pdf...the percentage of home loans that were delinquent (Del%) in April, the percentage of mortgages that are in foreclosure (FC%), the total mortgages that weren't current with their payments (NonCurr%) and the year over year change in the number of non-current mortgages are listed for each state and the District of Columbia...note that states that have a judicial foreclosure process, where the bank must prove their right to foreclose on a homeowner in court, are marked by a red asterisk, as the industry has a long history of focusing on this factor as a reason that foreclosures have been delayed so long....notice that all the states that still have more than 4% of their mortgaged homes in the foreclosure process are all judicial states; led by New Jersey with 6.5%, Florida with 5.6%, New York with 5.0%, Hawaii with 4.5%, and Maine with 4.1%...

the next graphic below, from page 17 of the pdf, shows the pipeline ratios, a measure of how long mortgages have remained mired in the foreclosure process, over the history of the mortgage crisis...as the sidebar on the graphic indicates, the pipeline ratio is computed by adding those homes that are seriously delinquent to those already in foreclosure and dividing that by the average number of completed foreclosures per month over the previous 6 months...what that results in is the average number of months a problem home loan would be in the "foreclosure pipeline" at the current pace of foreclosure in each state before the foreclosure process on all seriously delinquent homes is completed…again, BKFS distinguished between judicial states shown in blue, where a court proceeding is necessary to complete a foreclosure, and non-judicial states in red, where such a proceeding isn't necessary for the banks to have the the home seized....obviously, early on in the crisis, the foreclosure process was much longer for judicial states, with their average reaching 118 months and the foreclosure pipeline ratios for New York and New Jersey reaching 50 years, but as we can see on the graph, the difference has closed as judicial states have moved to speed the court process...now the pipeline ratio now averages more than 4 years and rising for both types of processes; 52 months for judicial states and 48 months for non-judicial states...the reason for the increase in the foreclosure pipelines recently is more likely procrastination on the part of the mortgage servicers and banks rather than court delays, possibly because they've experienced quite a bit of deterioration in the properties they've seized, and would rather leave the homes occupied by delinquent homeowners than have them destroyed by vandals...as of April, seriously delinquent homeowners have averaged 495 days in their homes since first becoming seriously delinquent, while those in the foreclosure process have been delinquent on their mortgages for an average of 985 days without a foreclosure sale...

you may recall that in addition to monthly data on new mortgages, mortgage prepayments, delinquencies and foreclosures, each Mortgage Monitor includes a few bullet points which they illustrate with graphs...a major focus of this month's Mortgage Monitor was those mortgage loans that have had an interest rate modification sometime during the crisis that are now facing a reset of those interest rates; their analysis of modified loans found that nearly 2 million such loans are now in the facing interest rate resets, which in most cases would cause their monthly mortgage payment to spike...furthermore, 40% of those who face such a reset are "underwater" on their mortgage, meaning that they owe more on their house than it is currently valued at based on the BKFS proprietary home price index; in addition, another 18% of those modified loans facing resets have less than 9 percent equity in their homes...previous research by LPS has found that those with such negative equity or near negative equity are more likely to stop paying on their mortgage in a crisis than those who have solid positive equity...hence the coming resets have the potential of setting off another wave of increasing mortgage delinquencies....the bar graph below shows the count of those mortgages that had a reduced interest rate modification to their home loans each quarter since the beginning of 2008...the red on each of several of the bars representing modifications in the earlier years represents the tiny portion of such loans that have already seen a reset...clearly, the large majority of modified mortgages are still facing such an interest rate reset and subsequent higher mortgage payments...

(the above are the comments that accompanied my regular sunday morning links emailing, synopses which in turn were mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links that accompanies these commentaries, most from the aforementioned GGO posts, contact me…)

note on the graphs used here

in March a year ago the St Louis Fed, home to the FRED graphs, changed their graphs to an interactive format, which apparently necessitated eliminating some of the incompatible options which we had used in creating our static graphs before then...as a result, many of the FRED graphs we've included on this website previous to that date, all of which were all created and stored at the FRED site and which we'd always hyperlinked back there, were reformatted, which in many cases changed our bar graphs to line graphs, and some cases rendered them unreadable... however, you can still click the text links we've always used in referring to them to view versions of our graphs as interactive graphs on the FRED site, or in the case where an older graph has gone missing, click on the blank space where it had been in order to view it in the new format....